U.S. Treasury Prices Jump as July Fed Hike Odds Fall to About 20% After Softer CPI

U.S. Treasury prices surged after consumer price data came in below expectations, prompting traders to pull back bets on a Federal Reserve rate hike. According to Jin10, the two-year U.S. Treasury yield, which is highly sensitive to the near-term policy outlook, fell as much as 14 basis points to 4.14%, marking its biggest one-day drop since February. Meanwhile, the interest-rate swap market showed the probability of a Fed rate hike in July fell to about 20% from more than 40% previously. Dan Carter, a senior investment portfolio manager at Fort Washington Investment Advisors, said the data were broadly below expectations and that the possibility of a near-term rate hike was no longer present. He added that markets had been worried inflation would come in too high, and said the data should support the bond market and encourage the yield curve to steepen again. Carter said his base case was that the Fed would keep rates unchanged, and that the latest data supported that view.